1998 P T D 399

[Income-tax Appellate Tribunal Pakistan]

Before Nasim Sikandar, Judicial Member and Shariq Mahmood, Accountant Member

I.T.As. Nos. 70/LB and 71/LB 1996, decided on 05/04/1997.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32(3)---Income from business---Estimate of sales---G. P. rate-- Assessee returned sales for two years with consistent application of G.P.

rate---Assessing Officer found that in the year 1993-94 details of sales lacked complete addresses---Same deficiency was also found in the year 1994-95-- Assessing Officer, accepting the declared G.P. rate for both years and making some adjustments in profit and loss accounts, estimated income on higher level---Commissioner of Income-tax (Appeal) accepted assessee's appeal on the ground that Assessing Officer had failed to bring home any new material to reject the assessee's trading results, particularly, when the Tribunal had directed to accept the trading results in the previous year-- Validity---Held, C.I.T.(A) clearly erred in law and in fact by allowing relief to the assessee as every assessment year was independent accounting year-- Maintenance of accounts would have to be seen in the perspective of the accounts maintained for that very period for it was a legal proposition-- Acceptance of accounts in one year cannot be termed as a decision - Accounts maintained were primarily based upon factual position with respect to, business volume and related activity---Confirmation or approval in one year cannot follow as natural corollary in subsequent year---Impugned order was set aside and case remanded with direction to C.I.T.(A) that maintenance of accounts in the two years be judged on the facts obtaining on record as also objections made by the Assessing Officer---Declared version and treatment meted out to the assessee qua estimates of sales as well as application of G.P. rate in case of trading sales in the year 1994-95 shall likewise be considered afresh---Relief allowed or denied shall be supported by legally acceptable reasons.

(b) Income-tax---

----Appeal before Tribunal---Practice and procedure---Grounds of appeal mean to be filed for one year were annexed with the memo, of appeal filed for the other year and vice versa---Held, since such kind of mistake being not unusual grounds of appeal for two years were allowed to be interchanged in circumstances.

1968 PTD (Trib.) 117 distinguished.

Shahid Bashir, D.R. for Appellant.

Muhammad Sarfraz, F.C.A. for Respondent.

Date of hearing: 20th March, 1997.

ORDER

NASIM SIKANDAR (JUDICIAL MEMBER). ---These departmental appeals in the years 1993-94 and 1994-95 arise out of a consolidated first appellate order recorded on 11-10-1995 by CIT(A)-I, Lahore whereby declared trading results of the assessee were directed to be accepted.

2. The assessee is a private limited company and derives income from running a re-rolling mill of six-inch size. In the two years under review sales were respectively disclosed at Rs.1,93,84,030 and Rs.2,10,21,553. A consistent rate of 7.94 % was disclosed. The assessing officer in the year 1993-94 found that details of sales as furnished lacked complete addresses. Also that the assessee company consumed muck higher units of electricity per metric ton production. Therefore, although the purchases were verifiable and had been made only from two parties of Karachi, he proceeded to estimate sales at Rs.2,00,00,000. However, the declared rate of 7.94% was accepted. After making some adjustments in profit and loss account net income for the year was computed at Rs.2,72,686 as against disclosed at Rs.99,098. In the year 1994-95 the assessee disclosed an income of Rs.1,35,830. In this year the assessee declared trading sales for the first time, The books of accounts maintained by the assessee revealed same defects which were noted in the immediate preceding year namely that details of sales furnished lacked complete addresses. Therefore, the declared results were rejected on the ground that sales were not fully verifiable. Thereafter the assessing officer proceeded to estimate sales in manufacturing account at Rs.2,17,00,000 and in trading account at Rs.1,65,00,000. The first account was subjected to declare rate of 7.94 % while the second to a rate of 5 %. After making profit and loss disallowances under various heads net income was assessed at Rs.7,90,051.

3. On challenge before the first appellate authority the declared trading results were directed to be accepted on the only ground that in the preceding year this Tribunal had directed acceptance of the trading results and that the assessing officer had failed to bring home any new material to reject the own manufacturing trading results. Relevant portion of the order of the first appellate authority reads as under:---

"The learned assessing officer has estimated the sales for the sole reason that the sales are only partly verifiable. This objection was also raised in the previous years and the learned ITAT directed to accept the declared trading results as the entire purchases were verifiable and the sales were in accordance with the sales tax record. Since the learned assessing officer has brought no new material on record to reject the own manufacturing trading results, it is directed that the declared trading results for both the years under appeal should be accepted."

In the year 1994-95 learned first appellate authority confirmed the estimated trading sales as against the declared at Rs.1,63,32,685. The applied rate at 5 % as against the declared at 2.75 % was however found excessive and therefore directed to be reduced to 3 %. In case of profit and loss account partial relief was allowed under the head repair and maintenance expenses. I Rest of the disallowances were confirmed. This has grieved the Revenue.

4. Learned A.R. for the assessee at the outset of the proceedings objects that the grounds of appeal as annexed with the memo. of appeal are not relevant to the issues decided by the first appellate authority. Learned D.R. on the other hand submits that inadvertently the grounds of appeal meant to be filed in the year 1994-95 were annexed with the memo of appeal filed for the year 1993-94. Also that similar mistake happened in the year 1994-95 wherein the ground of appeal relevant to the year 1993-94 was attached with the memo of appeal. He has made a request in writing for permission to transmit the grounds of appeal in the two years to relevant files. It appears that both the memo of appeal and grounds of appeal were prepared at the same time and filed before this Tribunal on the same date viz. 3-1-1996. Apparently while mentioning the period of assessment one year was misreported for the other. Since such kind of mistake is not unusual, we will allow the request and direct that the grounds of appeal in I.T.As. Nos.70 and 71 for the years 1993-94 and 1994-95 shall be interchanged.

5. Learned D.R. in terms of grounds of appeals assails the aforesaid consolidated order describing the same to be a result of misconception and against the basis of Income-tax law and the accounting principles. He contends that in both the years trading results were seen by the appellate authority in the perspective of those made or maintained in the earlier years, which was totally incorrect. Further contends that every assessment year being an independent accounting period the accounts maintained in one year can only be judged in the perspective of the business activity carried out during that particular year. These can neither be rejected nor accepted for the mere reason that in earlier or subsequent period these were believed or disbelieved. In the year 1994-95 reduction in the applied rate in case of trading sales is also vehemently contested.

6. Learned A.R. for the assessee on the other hand supports the impugned order. It is stated that this Tribunal in the year 1992-93 directed acceptance of the declared results through an order recorded in ITA No.9543/LB/1992-93 (Assessment year 1992-93) recorded on 6-6-1995. It is also pointed out through the same order this Tribunal rejected the grievances of the Department in the years 1990-91 to 1992-93 whereby the accounts were directed to be accepted. In support of his submission that the Revenue is bound by an earlier decision of the Tribunal reliance is placed upon 1968 PTD (Trib.) 117.

7. Having heard the parties we are persuaded to agree with the submissions made at the bar for the Revenue as also the grounds of appeal taken. The aforesaid extracts from the order of the first appellate authority indicates that the declared trading results in manufacturing account were accepted on the sole ground that in previous year similar objections made by the assessing officer were not approved by this Tribunal. Learned first appellate authority clearly erred in law and in fact by allowing the relief for this reason alone. Every assessment year being an independent accounting period the objections raised against maintenance of accounts will have to be seen in the perspective of the accounts maintained for that very period. The objection of the assessing officer in both the years that though purchases were 'duly verifiable but the sales were not so was not relied upon. The appellate authority without dislodging the objection proceeded to allow relief which cannot be sustained Mere fact that in one year an appellate authority approves the maintenance `of accounts by an assessee and does not find the objection of the assessing Officer to be correct hardly means that accounts maintained in subsequent years shall be accepted as a matter of course. It is only a legal preposition decided by a higher forum, which binds the lower forum. Acceptance of accounts in one year cannot be termed as a decision with respect to a legal preposition. The accounts maintained by an assessee are primarily based upon the factual position with respect to business volume and related activity. Therefore, their confirmation or approval in one year cannot follow as a natural corollary in subsequent years. An assessee may very well have impeccable accounts in one year but in the next he may, lack in a number of aspects to qualify for acceptance. Also the disapproval of an objection in one year cannot mean that the objection will remain incorrect in spite of faulty accounts maintained for another period or for that matter in subsequent years Therefore identity of objection with a period when the accounts were accepted cannot lead to the same results. This Tribunal approved the maintenance of accounts only in respect of the period, which was in issue before it through the aforesaid order dated 6-6-195. No Court, forum or authority can be understood to mean that since accounts maintained by an assessee were acceptable in one year these should invariably be accepted in subsequent years. The aforesaid reported decision of this Tribunal as relied upon before us is clearly distinguishable. As stated above, it is only the decision with respect to a legal preposition which binds the assessing officer in subsequent years and not an approval or disapproval of a finding of fact. The acceptance or rejection of accounts in an year is at best a finding of fact. In the reported decision the Appellate Tribunal in one year found that the minors were only admitted to benefits of partnership and that they were not partners. This finding of the Tribunal was not challenged by way of a reference etc. Therefore, the refusal of the assessing officer to renew the grant of registration in the next year on similar reasons was dis approved. The question of admission of minors to the benefits of a partnership firm being both a question of law as well as fact the Tribunal found that the assessing officer erred in law in ignoring the settlement of legal preposition by the Tribunal that minors could be admitted to benefits of partnership and that they could not be taken as full partners.

8. Learned first appellate authority, as observed earlier, directed acceptance of declared version in a mechanical manner and without considering the objections of the assessing officer. In the later year the applied rate on trading sales was reduced to 3 % again without bringing home any reason therefore. So appears to be the case with reduction of disallowance under the head repairs in both the years. Therefore, we will set aside the impugned order with a direction to the first appellate authority that maintenance of accounts in the two years will be judged on the facts obtaining on record as also the objections made by the assessing officer. Declared version and the treatment meted out to the assessee qua estimation of sales as well as application of G.P. rate in case of trading sales in the year 1994-95 shall likewise be considered afresh. The relief allowed or denied shall be supported by legally acceptable reasons.

9. So are the reasons for remand.

C. M. S./411/Trib. Order accordingly.